Retailers tap software to pick best locations for new stores

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This Woburn Dunkin’ Donuts moved to the other end of its complex, installed a drive-through, and watched sales jump.

By Taryn LunaGlobe Correspondent
August 29, 2013

A Dunkin’ Donuts store on Woburn’s Main Street relocated less than 100 yards — from one end of a tiny strip mall to another — and added a drive-through last year. Sales soared more than 50 percent.

The reason seems simple: Drive-throughs attract more on-the-go coffee drinkers. But the move was guided by a software program that aggregated data on demographics, competition, and traffic, leading Dunkin’ to conclude the store’s sales would explode with the change.

“The application told us the demographics in this area had really shifted over time,” said Grant Benson, vice president of franchising at Dunkin’ Brands Group. “People aren’t as likely to get out and have a cup of coffee in the morning here anymore. They’re getting it on the way to something else.”

Across the retail industry, software programs that help identify ideal new locations are becoming increasingly popular — and critical — to successful expansion. At Dunkin’, the software is so valued that field teams are equipped with iPads to access it instantly.

The programs have revolutionized the scouting process by dramatically reducing the amount of time it takes to find potential sites. Now information that previously took days to pull from multiple sources — and often required someone to stand on street corners to count cars driving by — is aggregated in a click.

“For a retailer with five locations, it’s not rocket science to find a sixth location,” said Pranav Tyagi, chief executive of Tango Analytics of Dallas, Dunkin’s software provider. “When you have a company like Dunkin’ with 7,000 locations, and you want to add a new location, it’s like microsurgery.”

Katherine Taylor for The Boston Globe

The new Dunkin’ Donuts location, on the other end of the complex.

Tyagi said his company collects detailed data on sales performances of existing stores, the presence of competitors, traffic flow, and local brand awareness to target potential locations for new stores.

The company taps into consumer behavior with customer surveys. It also buys information from outside companies, such as STI Pop Stats or Nielsen, that group households across America in categories based on life stage, income level, residence, and other factors. Tango’s software even projects sales volumes in a given location.

Another company, Esri, a leader in digital mapping technology and location analytics in Redlands, Calif., compiles data from more than 100 different sources into 7,000 variables that can be tailored for each company.

The gathered information includes easily accessible data, such as voting preference, education, occupation, and military service. A more detailed snapshot of potential consumers is created with a wide range of data on shopping behavior, such as the amount of money spent on recreation, tobacco, baby food, or food consumed at home or away, said Simon Thompson, Esri’s director of commercial business.

“I could literally be looking at a piece of dirt that I thought might be a good Wendy’s site and have this information,” he said. “Immediately the retailers have a sense of whether there is a gap in the market, what the market potential might be, and, if there is no gap, the degree of competition.”

Esri’s software is used by retailers like Starbucks Corp., Wendy’s Co., and Petco Animal Supplies Inc. Yet Thompson said the most growth is coming from “dollar store” retailers.

Tyagi said his business is also booming. Tango Analytics, which has a stable of 150 clients, added 20 this year. The company gained just 15 new clients in all of 2012.

“This year has been crazy,” he said. “Everyone is growing now, and the purse strings have loosened in terms of capital investment. People don’t want to make mistakes or lose an edge.”

These types of retail location programs cost as little as $2,500 a year for a limited Internet-based option, to hundreds of thousands of dollars for software tailored to a specific retailer and hosted on its own server.

But retailers, even smaller chains such as cosmetics company Bluemercury, think the investment is worth the price. Bluemercury, based in Washington, D.C., operates 45 stores and plans to expand its Boston presence in September with new locations on Newbury Street and in Lynnfield.

Chief executive Marla Beck says she uses a software program that overlays customers’ personal information with ZIP code and demographic information to determine new areas for stores. Another layer of consumer behavior data helps her understand the business potential at a given location.

“It helps you focus and move more quickly,” she said. “It tells you where to focus your energy. Now we’re spending our time in Boston instead of a state like Tennessee.”

Yet the software has its limitations and cannot replace human experience.

Beck said the software suggested placing a new store on Newbury Street, and her business-partner husband found a walk-up retail spot. But Beck, a former Boston resident in her college days and a lover of shopping, knew something the software and her husband did not: Walk-ups experience less foot traffic.

“I wanted to do the down store and not the up store because up is a bigger mental barrier than down,” she said. “So, in our [store], the entrance is flat to the street. You walk through the doors and then it goes down.”

Most software models suggest retail areas, such as the Derby Street Shoppes in Hingham, but won’t pinpoint a specific section of the street or individual retail address.

Beck said her software is lacking because it doesn’t explain nearby activity generators, such as women’s clothing stores that will attract her target consumer or men’s fashion retailers that won’t.

Benson said Dunkin’s software complements teams in the field, who still use their own expertise and a certain degree of gut instinct to pick exact locations and assess small details, like whether foliage will block a Dunkin’ sign from road traffic.

“As with just about everything, it’s about science and art,” Beck said. “You’re trying to take away some of the art and not rely 100 percent on the science.”